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Markets 101 (response to NY Times article) June 2012

When the gov’t inserts itself to “help” with respect to the economy, it inevitably distorts the free-market value of the product, be it a home, an education, health care, or a bushel of wheat, creating more problems than it solves. Markets should be allowed to fluctuate unfettered—-it’s a form of organized chaos and there is an inherent beauty in them. Something is worth what someone is willing to pay for it, plain and simple. See examples below.

If too little wheat is produced, the price/value is high, thus making farming wheat a rich profession—–when others want to get in on the lucrative venture, the market is eventually flooded with wheat, lowering the price and making it less lucrative. The inefficient, disorganized farmers will lose out first, thus naturally separating the wheat from the chaff (pun absolutely intended). But the government subsidizes agriculture production, paying farmers NOT to till their land—-it’s a hold over from the depression and the Keynesian-esque subsidy in response to it is one of the reasons why people are starving in Africa today.

Take college loans and Pell grants—–if people go to college and come out in debt and can’t find a job (sound familiar?), it’s because the market is flooded with college graduates. This has been the case for years now. If the market were allowed to operate naturally, then people would realize that the high cost did not meet the benefits and fewer people would apply to college. With fewer applicants, colleges would be competing for students/business, and costs of tuition would invariably fall.

But what have we seen? Costs continue to rise!!! Why? Because the academic-industrial complex knows the government will continue to subsidize students of questionable scholastic prowess and degrees of questionable real-world utility. So the price of tuition remains high even when economically, it shouldn’t.

Now, i digress overall, this is good for society (we’re supposedly smarter as a whole) but the investment isn’t worth what it once was.

Take health care, same deal. If a CAT scan, Celebrex, or knee replacement can be done more efficiently, the market will find a way to do it and cost comes down. In fact, the doctors from India we are educating here are already going back there and performing operations and procedures at a fraction of the cost in the US. However, when Medicare or Medicaid prices a product, drug, or procedure, guess what—-THAT’S WHAT IT’S WORTH, no matter what efficiencies the market can find. Further, you can bet that when those efficiencies are eventually found and the cost to the doctor/provider goes down, because the price remains constant as a result of the subsidy, the DIFFERENCE (that EVIL profit that my liberal friends hate so much) goes into the pockets of the providers.

The irony is that the egalitarian society that liberals wish to create by all these subsidies actually exacerbates inequality.

Bottom line, the MARKET, not some government regulation or program, will determine price/earning/valuation/efficiency/profitability equilibrium—-let it alone.

Disclaimer

The views expressed herein are solely those of The Reasonable Republican and should not be attributed to any agency, department, or office in which he may have previously been (or may currently be) employed.